Germany experienced a modest growth of 0.2 percent in 2025, marking a challenging period for Europe’s largest economy as it struggled to recover from a prolonged stagnation. This estimate aligns with projections from Germany’s central bank and comes after two consecutive years of declining GDP. Ulrich Kater, chief economist at DekaBank, characterized 2025 as another lost year economically.
Despite a boost in consumer and government spending, growth was hindered by lower private sector investments and a third consecutive year of declining exports. The manufacturing sector, critical to the economy, faced significant declines, particularly in the automotive and engineering industries. Ruth Brand, president of the federal statistical office, attributed these challenges to increased U.S. tariffs, a stronger euro, and rising competition from China, noting a 7.8 percent decline in exports to the U.S., particularly affecting vehicle sales.
The Bundesbank has indicated that Germany has been in recession since late 2022 and has tempered expectations for a fast recovery, anticipating only 0.6 percent growth for the coming year. In contrast, Sebastian Dullien from the IMK think-tank predicts that while growth is expected to resume in 2026, it will likely remain muted.
In terms of fiscal management, Germany’s government deficit decreased by €8 billion to €107 billion in 2025, representing 2.4 percent of GDP, though forecasts suggest it may rise to 3.9 percent in 2026.
Why this story matters
- Economic recovery strategies are crucial for Germany to regain its stability as Europe’s largest economy.
Key takeaway
- While government spending has risen, persistent challenges in exports and manufacturing continue to impede growth.
Opposing viewpoint
- Some analysts argue that the current forecasts may be overly cautious and that the economy could rebound more robustly than predicted.
